Nvidia says the US government is allowing AI chips to be developed in China

Nvidia said Thursday that the US government will allow it to continue developing its H100 AI chip in China. It is a win for the company after it warned Wednesday that new export restrictions could hamper its operations in the country.

Nvidia said in a report to the Securities and Exchange Commission on Wednesday that the US government is restricting sales of its high-performance AI chips for servers, the A100 and H100, to China and Russia. Sales of both chips are still restricted in those markets, although it can still develop the H100 in China. Nvidia expects revenue to reach $400 million in the current quarter from new export restrictions.

The company’s stock fell about 9% in Thursday’s trading.

“The US government has authorized the export, re-export, and in-country transfers necessary to further NVIDIA Corporation’s development, or company, of the H100 integrated circuit,” Nvidia said in a statement Thursday.

A banner is placed at Nvidia’s headquarters on May 25, 2022 in Santa Clara, California.

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The Biden administration is working to limit US exports of some semiconductors and equipment over concerns that Chinese companies might use them for military purposes. Graphics processors like the kind made by Nvidia and Advanced Micro Devices are well suited for AI applications that can include weapon development, facial recognition, and other military uses.

The H100 is Nvidia’s upcoming AI chip that was previously expected to ship by the end of the year. Part of its development takes place in China. The A100 is an older model that shipped for three years. Both are graphics processors that can be used for supercomputing and artificial intelligence.

Nvidia’s data center business, which includes sales of the A100 and H100, is one of the fastest growing parts of the company, with sales of $3.8 billion in the June quarter, a 61% year-over-year increase.

However, Nvidia CEO Jensen Huang warned analysts in August that Chinese cloud companies were slow to build their own data centers and that China was a “very big market” for the company. Nvidia said Thursday that it can continue to ship AI chips from its Hong Kong facility until September 2023.

“Chinese companies and Chinese internet companies have really slowed down on infrastructure investment this year, especially in the beginning — they were kind of slow to build and really accelerating — well, they really slowed in the second quarter,” Huang said.

Some analysts believe that Nvidia could mitigate the impact of the new export restrictions by working with the government, although it is unclear whether the Chinese government might retaliate with its own ban.

“While there are potential near- and medium-term risks from the export ban, Nvidia is working closely with [U.S. government] To navigate the situation and believe USG fully recognizes the critical/strategic importance of the Nvidia Accelerated Computing platform for the global technology industry,” JPMorgan analyst Harlan Suhr wrote in a note Thursday.

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The Commerce Department said the new export restrictions are related to national security, but did not answer follow-up questions about whether it had clarified or changed Nvidia’s policy.

“Although we are not in a position to identify specific policy changes at this time, we are taking a comprehensive approach to implement the additional necessary actions related to technologies, end uses, and end users to protect the national security of the United States and foreign policy interests,” a Commerce representative said on Wednesday.

AMD also said Wednesday that it has received new licensing requirements from the Department of Commerce, but it does not expect it to materially affect its business due to reduced exposure in China. AMD shares fell more than 4% during Thursday’s trading.

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